With a growing consciousness of pollution and a movement toward
going “green,” businesses should be aware of the availability of insurance coverage for environmental claims.
“The good news is that courts, especially in
Indiana, have sided mostly with businesses
and interpreted insurance policies to provide
coverage for environmental issues,” says
Robert Clark, partner with Taft Stettinius &
Hollister LLP. “Still, you need to be prepared.”
Smart Business spoke with Clark about
environmental insurance claims and what
businesses need to be aware of.
What kind of insurance coverage is available
for environmental issues?
Most business policies can cover environmental claims. Almost every business has a
comprehensive general liability (CGL) policy.
Environmental coverage generally can be
found through an interpretation of the provisions of those policies, particularly the older
ones. The insurance companies have
changed the language of the more recent
policies to avoid coverage, but particularly in
the older policies, most of which are applicable today, is where we find the coverage.
What kind of environmental issues do businesses run into?
We’re talking about environmental contamination from various forms of pollutants, like
leaking underground storage tanks or contamination that results from an industrial
operation. Sometimes dry cleaners cause
groundwater contamination because the fluids they use, basically solvents, end up going
down the drain and into the ground water.
Almost anybody in manufacturing or who
deals with petroleum products or solvents
has potential to contaminate the environment. Even bakeries can do it. They put flour
and yeast into the water when they discharge
through their sewers, which sucks up biological oxygen demand, killing plants and fish.
How successful have businesses been when
litigating with insurance companies?
The requests to the courts are usually for
the cost of the investigation, cleanup and associated attorneys’ fees and expenses.
Generally speaking, law firms have been very
successful in obtaining coverage for these
claims, particularly in Indiana. Indiana’s
Supreme Court issued a series of opinions
that interpret these CGL policies in such a
way as to provide coverage for policyholders,
and those opinions created a climate in the
state that’s more liberal toward policyholders
than almost any other state in the country.
Therefore, the availability of insurance coverage for claims in Indiana is probably much
higher for the typical business owner than it
is in any other state.
Other states interpret the pollution exclusion language in the insurance policies to
favor the insurance carriers. In Indiana, the
Supreme Court has said the language is
ambiguous and therefore construed it
against the insurance company and in favor
of coverage.
What constitutes an environmental claim?
This can be a sticky issue. There has to be a
claim made against an insured or business
before the policy kicks in. You can’t just say ‘I
have some dirty stuff here so you have to pay
to clean it up.’ Generally, there must be a claim. The questions are: What’s a claim? Do
you have to be sued? Is an EPA letter telling
you to clean up enough? Is an inspector being
sent out enough? What if you voluntarily
enter into a governmental cleanup program?
Has someone made a claim against you?
These issues frequently come up.
What are some bases for denial of coverage?
It’s tough to find one, but the ‘claim’ issue is
pretty common. What typically happens is
the insurance company will send a denial letter saying that its pollution exclusion covers
this, which is often the case when you make
a claim against a national insurance company. Those guys routinely send out denial letters, and business people think, darn, my
insurance company denied coverage. The
truth is, in Indiana, those denials are just
wrong. The insurance companies interpret
their policies incorrectly according to
Indiana law, and businesspeople should
know that just because an insurance company says they don’t have coverage, it doesn’t
mean they don’t have coverage, particularly
for an environmental claim.
How can a business safeguard itself against
environmental hazards?
There are many ways. The best one is to
comply with all the environmental laws and
regulations, but unfortunately that doesn’t
always get it done because a lot of the environmental laws are retroactive. You could
have been doing something in the 1960s that
was completely legal, and then somebody
comes along and says, ‘Guess what, that’s no
longer legal,’ and you have to comply.
What is the first thing a business should do if
it runs into an environmental issue?
Talk to an environmental consultant or an
environmental lawyer. Most small businesses
don’t have the resources to have someone on
staff who is responsible for such matters. An
environmental consultant or environmental
lawyer can offer compliance advice.
ROBERT CLARK is a partner with Taft Stettinius & Hollister LLP, with significant experience in environmental, commercial and science-based litigation. Reach him at (317) 713-3523 or [email protected].
